Tesla investors react positively to Musk pledge to step back from U.S. government role

Tesla shares surged about five per cent in premarket trading on Wednesday after Elon Musk said he would spend less time working for the U.S. administration, kindling hopes that the billionaire CEO would devote more time to the struggling EV maker's brand and sales.

Musk's participation in the Department of Government Efficiency, or DOGE, where he emphasized aggressive cost savings through federal job cuts has caused fierce public and political backlash, leading to a series of legal challenges, as well as protests and vandalism at Tesla showrooms.

Musk acknowledged the blowback in a conference call with analysts Tuesday but brushed off concerns that the brand damage was behind the steeper-than-expected 25 per cent decline in Tesla's first-quarter auto sales and a 71 per cent plunge in overall net profit.

Musk said he would cut back his work for President Donald Trump to a day or two per week from sometime next month since the "large slog of work necessary to get the DOGE team in place and working with the government to get the financial house in order is mostly done."

Investors bet that would ease some pressure off the Tesla brand and give Musk more time to focus on plunging sales, which have triggered a near 50 per cent slump in the company's stock price since its peak in December.

"Investors may breathe a small sigh of relief as Elon Musk said he'll step back from DOGE next month," said Chris Beauchamp, an analyst at online trading platform IG.

"After a 50 per cent fall in the stock price, investors are inclined to take a different view and with Musk set to make a return, these figures can be set aside on hopes that a more secure hand is on the tiller once again."

Morningstar analysts said: "We think the market was concerned Musk could be distracted from leading Tesla and potentially hurt Tesla's brand. Musk's decision to reduce his advisory role should alleviate these concerns."

The EV maker is on track to launch an affordable car — considered a crucial avenue for future growth — in the first half of 2025, but "the ramp might be slower than we had hoped," said Lars Moravy, Tesla's vice-president for engineering.

Last week, Reuters reported on the delay in Tesla's plans for an affordable car, a U.S.-made, stripped-down version of its best-selling SUV, the Model Y.

Tesla, however, said it was on track with plans to launch a robotaxi fleet in Austin, Texas, in June.

"Can you go to sleep in our cars and wake up at your destination? I'm confident that will be available in many cities in the U.S. by the end of this year," said Musk.

Musk's apparent conflicts of interest leading several companies subject to government regulation have been overlooked by the second Trump administration. 

Musk individually or with his companies had faced inquiries into, among other issues: alleged securities violations, questions over the safety of Tesla's Autopilot and Full Self-Driving (FSD) systems, potential animal welfare violations in Neuralink's brain-chip experiments and alleged hiring discrimination practices at SpaceX.